Rise in unemployment should give RBA reason to pause

The nation’s apparently booming job market has had governments, oppositions and the Reserve Bank of Australia wondering how to keep it growing without raising interest rates and boosting inflation. Yesterday’s surprise higher unemployment figures suggest that interest rates could be held in abeyance for a while.

Many had expected an extra 25,000 jobs were on the cards in April, but against expectations the Australian Bureau of Statistics figures showed instead that about 4300 jobs had been lost as the unemployment rate actually popped up to 3.7 per cent. The previous March, the unemployment rate had remained steady at 3.5 per cent for a second month, with the creation of an estimated 53,000 jobs. That March result peaked fears the RBA would raise rates, and it duly did.

However, the number of officially unemployed people rose in April by 18,000, and the participation rate decreased slightly, by 0.1 percentage points to 66.7 per cent, while the employment-to-population ratio also fell 0.2 percentage points to 64.2 per cent: both these indicators remained well above pre-pandemic levels, and hovered near their historic highs of last year.

There are fears the job market could fade later in the year, but the demand for workers stayed strong as evidenced by the ABS finding that the monthly hours worked during April rose by 2.6 per cent even though the reporting period coincided with the Easter holidays. One interpretation of the longer hours worked is that, squeezed between a year’s worth of rising interest rates and rising costs of living, people have been forced to seek and work longer hours to make ends meet.

News of the unexpected job decrease drove down the Australian dollar on international markets. However, if demand for labour has ebbed a little, it comes off historically super-strong highs, so the labour market is by no means weak. But it could become increasingly harder to maintain the current momentum.

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A report by the Herald’s Matt Wade that construction of thousands of new Sydney homes has been shelved despite a worsening rental crunch, as surging building costs and rising interest rates put residential projects on hold, illustrates how jobs in some sectors are at risk. Almost 16,400 new dwellings in NSW were approved but had not-yet-commenced building at the end of March, the highest number in over four years. Around three-quarters of those dwellings that hadn’t been started are slated to be apartments or townhouses, mostly in Sydney. The same is true around the country.

Against the pessimism overhanging sections of the building trade, Treasurer Jim Chalmers optimistically revealed in the budget last week that the government had a target of 1.495 million new migrants who could be expected to arrive in Australia over the next five years to work and continue the newcomers’ traditional role of propping up our economy.

Since May last year, the RBA has raised interest rates from a record low 0.1 per cent to 3.85 per cent to tackle inflation, which eased to 7 per cent in the first three months of the year. The bank had said repeatedly it would raise rates at a slower pace to limit damage to the job market. In fact, the bank has predicted a slower return to target inflation and earlier had forecast unemployment lifting to 3.6 per cent by June this year.

The labour market beat the RBA to it. The job losses in April suggest the labour market is responding to both higher interest rates cutting consumer demand and the rise in the numbers of workers who arrived when Australia opened the borders after the COVID-19 pandemic subsided. The RBA board meets on June 6 and has reason to give pause when mulling over interest rates.

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